Foreign Inheritance and Form 3520

[tpnl]

Client had a brother who passed away in Zambia in 2010 (Brother born and raised in Zambia, Zambia citizen, not US). My client immigrated to US and became a citizen many years ago.

Scenario is: death of non-US person in 2010. The estate is just now being settled. My client is about to receive over $100,000, so I will file Form 3520 to report the inheritance.

The property has appreciated in value since death. Taxes will be paid in Zambia (from what I'm told, we are not doing any of the foreign work).

My questions is, does my client have a schedule D gain on the appreciated portion? For example, date of death value $10,000. Property sold for $15,000. The estate is distributing the money (less attorney fees and taxes paid to Zambia) Monies are distributed to heirs. Does my client, the only heir, need to report a gain of $5,000?

Since the estate never distributed the interest in the property and the estate is the owner at the time of sale, is there any gain at all? My client never owned the property, the estate has retained ownership the entire time. Should this happened here in the US: the estate held the property, sold the property, the estate would have to report the gain and pay any tax owed. I'm thinking my client files Form 3520 and no gain to report on his tax return.

Any thoughts/guidance appreciated.

Kerrie

[Roland Slugg]

Good post ... everything was nice and clear.

U.S. taxpayers are taxed on their worldwide income, so if the asset was owned by your client at the time it was sold, then yes, it would be reportable by him on his own F-1040. However, your post says the asset that was sold was owned by the decedent's estate at the time it was sold. If that is true, then your client would not report any gain on his own tax return for the sale of that asset.

The above responds to your question, but I'd like to add two additional comments about the subject:

If your client's inheritance consists only of cash, then he will have no basis issues. If he receives other property, such as securities, the usual DOD basis will apply for that property.

You are also correct about F-3520. I'm sure many would not realize that form is required ... or even exists. You only need to complete Part IV of that form, plus the identifying information on page 1. Finally, the "more than $100,000" filing threshold kicks in, I'm sure, based on the value of cash after conversion to $USD, plus the FMV of all other assets received.